Phillip Asia Pacific Growth Fund. Annual Report Year ended 30 June 2018

Transcription

1 Annual Report

2 PHILLIP ASIA PACIFIC GROWTH FUND CONTENTS Page DIRECTORY 2 MANAGER S REPORT 4 REPORT OF THE TRUSTEE 12 STATEMENT BY THE MANAGER 13 AUDITORS REPORT 14 FINANCIAL STATEMENTS Statement of Total Return 17 Statement of Financial Position 18 Statement of Movements in Unitholders Funds 19 Statement of Portfolio 20 Notes to the Financial Statements 26 IMPORTANT INFORMATION 36 1

3 PHILLIP ASIA PACIFIC GROWTH FUND DIRECTORY MANAGER Phillip Capital Management (S) Ltd 250 North Bridge Road #06-00 Raffles City Tower Singapore (Company Registration Number: W) DIRECTORS OF THE MANAGER Lim Hua Min Jeffrey Lee Chay Khiong Linus Lim Wen Sheong Lee Ken Hoon Lim Wah Sai Louis Wong Wai Kit TRUSTEE HSBC Institutional Trust Services (Singapore) Limited 21 Collyer Quay #13-02 HSBC Building Singapore (Company Registration Number: R) CUSTODIAN The Hongkong & Shanghai Banking Corporation Limited 1 Queen s Road Central Hong Kong REGISTRAR HSBC Institutional Trust Services (Singapore) Limited 21 Collyer Quay #13-02 HSBC Building Singapore (Company Registration Number: R) 2

4 PHILLIP ASIA PACIFIC GROWTH FUND AUDITORS KPMG LLP 16 Raffles Quay #22-00 Hong Leong Building Singapore SOLICITORS TO THE MANAGER Chan & Goh LLP 50 Craig Road #03-01 Singapore SOLICITORS TO THE TRUSTEE Allen & Gledhill LLP One Marina Boulevard #28-00 Singapore

5 PHILLIP ASIA PACIFIC GROWTH FUND Manager s Report The Fund was down 4.2% for the full year ending 30 June 2018, compared to its benchmark (MSCI AC Asia Pacific Index) which rose 6.3% on a SGD adjusted basis. The later part of 2017 saw Asia Pacific markets climb a wall of worry, from concerns about slowdown in the growth recovery (after a frenetic pace in the first calendar half year of 2017), to concerns about warlike rhetoric from North Korea. Ultimately, strong corporate earnings and encouraging economic data, as well as positive developments such as the proposed US tax reform, provided a favourable backdrop for continued inflows into Asia Pacific markets was a different story altogether. January saw a continuation of the positive momentum from 2017, but markets saw a dramatic reversal in February, with concerns raised about rising inflation which might necessitate a more aggressive rate tightening by various countries, in particular the US Federal Reserve. The worries then shifted to trade tensions, with the US firing the first salvo through a unilateral declaration of tariffs on various imported products from various countries, in particular China. A rising US dollar allied with rising US interest rates would lead to fund outflows and dramatically weakening currencies in certain emerging markets (Argentina, Turkey) in the later months of 2018, further exacerbating the risk aversion in Asia Pacific equity markets on fears of contagion. What this meant was an unravelling of the strong 2017 share price performance of many sectors. For example, the technology related sectors related to the Internet, semiconductors and electronics manufacturing were among the strongest performing in 2017, but they would see significant profit-taking in 2018, consequently recording just average performance for the full year (of the Fund). The energy sector maintained its strength, to end up as the top performing sector within this period. On the other hand, more defensive sectors such as healthcare and consumer staples would rally strongly during the uncertain environment to emerge among the top sectoral performers for the Fund s full year. While our Fund lagged the benchmark significantly during the later half of 2017 due to laggard performance by a number of our portfolio stocks (such as those in the infrastructure-related and transportation segments), we were generally in line with market performance for Consequently we lagged the benchmark for the Fund s full year performance. We believe that current market valuations are attractive, but we are increasingly concerned that a trade war could do considerable damage to global economic confidence and derail the cyclical recovery. The current US Federal Reserve under new head Jerome Powell also seems more hawkish than predecessor Janet Yellen. From a positioning perspective, we have added for the Fund, and continue to be on the lookout, for those stocks that will nonetheless benefit from long-term consumption and urbanisation trends in Asia, particularly those with a domestic consumption bent, which we expect to be more resilient in the face of a trade war which could cripple trade and investments. The Fund is tilted towards developed Asia-Pacific markets (Japan, Australia, Singapore for example) which have solid macros able to withstand rate hike tantrums that have hit emerging markets and sparked risk of contagion. We think that identifying segments to avoid are also equally important. Within these, we shun companies with excessively high debt that could be hit by 4

6 PHILLIP ASIA PACIFIC GROWTH FUND higher servicing burdens, as well as those that have already re-rated previously due to cyclical peaks in their particular business. In view of the volatile markets, we have also been more active in taking profit where opportunities present themselves. The market correction has presented more investment opportunities than we can capture within the Fund at any one point, hence where there are good profits on a stock we are happy to take them and switch to other quality stocks that have become attractive. 5

7 PHILLIP ASIA PACIFIC GROWTH FUND Disclosures on the Fund 1 a) I Investment Classified by Geography By Geography (Summary) Percentage of net assets Fair value attributable to unitholders 30/06/ /06/2018 S$ % Australia 1,190, China 4,328, Great Britain 674, Hong Kong 507, India 834, Indonesia 323, Japan 6,953, Philippines 10, Singapore 1,134, South Korea 665, Taiwan 582, Thailand 533, Vietnam 265, Portfolio of investments 18,006, Other net assets 1,381, Net assets attributable to unitholders 19,388, As required by the Code on Collective Investment Schemes 6

8 PHILLIP ASIA PACIFIC GROWTH FUND a) II Investment Classified by Industry By Industry (Summary) Percentage of net assets Fair value attributable to unitholders 30/06/ /06/2018 S$ % Automotive 483, Banks and Finance 3,321, Chemical 505, Computer/Software 1,058, Diversified Resource 419, E-Commerce 516, Electrical and Electronic Engineering 2,033, , Food and Beverage 716, Fund 272, Healthcare and Pharmaceutical 1,012, Insurance 1,613, Machine tools 518, Manufacturing 861, Metals and Mining 977, Oil and Gas 677, Real estate 1,170, Telecom service 425, Textiles 322, Wholesale 503, Portfolio of investments 18,006, Other net assets 1,381, Net assets attributable to unitholders 19,388,

9 PHILLIP ASIA PACIFIC GROWTH FUND Percentage of net assets attributable to a) III Asset Class Fair value 30/06/2018 unitholders 30/06/2018 S$ % Equities 18,006, Cash & cash equivalents 1,187, Other net current assets 194, ,388, b) Top Ten Holdings Fair value 30/06/ Largest Holdings 30 June 2018 S$ % Sony Corporation 724, HSBC Holdings Plc 674, Tencent Holdings Limited 601, China Construction Bank Corporation H Shares 556, HDFC Bank Limited 554, Alibaba Group Holding Limited 516, China Life Insurance Company Limited 516, Kao Corporation 509, Mitsubishi Corporation 503, Panasonic Corporation 503, Fair value 30/06/2017 Percentage of net assets attributable to unitholders 30/06/ Largest Holdings 30 June 2017 S$ % Panasonic Corporation 1,112, Taiwan Semiconductor Manufacturing Company 950, Limited Samsung Electronics Company Limited 832, Netease Inc 776, HSBC Holdings Plc 768, China Merchants Port Holdings Company Limited 737, China Communications Construction Company 720, Limited Seek Limited 713, Carsales.com Limited 703, Seibu Holdings Inc 681, Percentage of net assets attributable to unitholders 30/06/2017 8

10 PHILLIP ASIA PACIFIC GROWTH FUND c) (i) Exposure to Derivatives 30 June 2018 Notional amount S$ 20,052 Fair value assets S$ Nil Fair value liabilities S$ 31 (less than 0.01%) c) (ii) Net losses on derivative contracts realised for the year ended 30 June 2018 S$32,607 c) (iii) Net losses on outstanding derivative contracts marked to market 30 June 2018 S$31 d) Amount and percentage of total fund size invested in other unit trusts, mutual funds and collective investment schemes 30 June S$272,847 (1.41%) e) Amount and percentage of borrowings of total fund size 30 June Nil f) Amount of redemptions and subscriptions for the year ended 30 June Total amount of redemptions S$ 810,101 Total amount of subscriptions S$ 71,024 g) Related-Party Transactions for the year ended 30 June 2018 Brokerage fees paid to a related party of the Manager S$ 7,903 Interest income received from a related party of the Trustee S$ 123 Bank balances held with related parties of the Trustee Amounts held with related parties of the Manager S$998,696 S$189,122 h) Performance of the Fund 30 June Months 6 Months 1 Year Since Inception 3 Years 5 Years 10 Years 23 Nov 1995 Cumulative % The Fund Benchmark Annualised % The Fund Benchmark Note: Returns are calculated in Singapore dollars on a bid-to-bid basis, with net dividends reinvested. 9

11 PHILLIP ASIA PACIFIC GROWTH FUND Source: Bloomberg Benchmark: MSCI AC Asia Pacific Index (SGD Basis) i) Expense Ratios 30 June June % 1.86% The expense ratio has been computed based on the guidelines laid down by the IMAS. The calculation of the expense ratio was based on total operating expenses of S$343,262 (2017: S$399,076) divided by the average net asset value of S$20,520,415 (2017: S$21,503,502) for the year. The total operating expenses do not include (where applicable) brokerage and other transaction costs, performance fees, interest expenses, distributions paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source arising out of income received. The Fund does not pay any performance fees. The average net asset value is based on the daily balances. j) Turnover Ratios 30 June June % % The turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. The calculation of the portfolio turnover ratio is based on the lesser of purchases or sales of the underlying investments S$23,214,728 (2017: S$23,453,460), divided by the weighted average daily net asset value of S$20,520,415 (2017: S$21,503,502). Total value of purchases (or sales) do not include brokerage and other transaction costs. k) Any material information that will adversely impact the valuation of the scheme such as contingent liabilities of open contracts. Nil. l) Soft dollar arrangements The Manager may receive or enter into soft-dollar commissions or arrangements. The Manager will comply with applicable regulatory and industry standards on soft-dollars. The soft-dollar commissions which the Manager may receive include research and advisory services, economic and political analyses, portfolio analyses including valuation and performance measurements, market analyses, data and quotation services, computer hardware and software or any other information facilities to the extent that they are used to support the investment decision making process, the giving of advice, or the conduct of research or analysis and custodial service in relation to the investments managed for clients. The soft dollar credits utilised are not allocated on a specific client basis. The brokers also execute trades for other funds managed by the Manager. 10

12 PHILLIP ASIA PACIFIC GROWTH FUND The Manager will not accept or enter into soft dollar commissions or arrangements unless such soft-dollar commissions or arrangements would, in the opinion of the Manager, assist the Manager in its management of clients funds, provided that the Manager shall ensure at all times that transactions are executed on the best available terms taking into account the relevant market at the time for transactions of the kind and size concerned, and that no unnecessary trades are entered into in order to qualify for such soft-dollar commissions or arrangements. The Manager does not, and is not entitled to retain cash rebates for its own account in respect of rebates earned when transacting in securities for account of clients funds. During the period, soft dollar services received from each broker were investment research and publications, data and quotation services. Soft dollar services were received from the Manager s panel of brokers which executed transactions for the Fund and other funds managed by the Manager. 11

13 Report of the Trustee Report of the Trustee The Trustee is under a duty to take into custody and hold the assets of Phillip Asia Pacific Growth Fund in trust for the unitholders. In accordance with the Securities and Futures Act (Chapter 289), its subsidiary legislation and the Code on Collective Investment Schemes, the Trustee shall monitor the activities of the Manager for compliance with the limitations imposed on the investment and borrowing powers as set out in the Trust Deed in each annual accounting period and report thereon to unitholders in an annual report. To the best knowledge of the Trustee, the Manager has, in all material respects, managed Phillip Asia Pacific Growth Fund during the period covered by these financial statements, set out on pages 17 to 35, in accordance with the limitations imposed on the investment and borrowing powers set out in the Trust Deed. For and on behalf of the Trustee HSBC Institutional Trust Services (Singapore) Limited Authorised signatory 20 September

14 Statement by the Manager Statement by the Manager In the opinion of Phillip Capital Management (S) Ltd, the accompanying financial statements set out on pages 17 to 35, comprising the Statement of Total Return, Statement of Financial Position, Statement of Movements of Unitholders Funds, Statement of Portfolio and notes to the financial statements are drawn up so as to present fairly, in all material respects, the financial position and the portfolio holdings of Phillip Asia Pacific Growth Fund 30 June 2018, and the financial performance and movements in unitholders funds for the year then ended in accordance with the recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Singapore Chartered Accountants. At the date of this statement, there are reasonable grounds to believe that Phillip Asia Pacific Growth Fund will be able to meet its financial obligations as and when they materialise. For and on behalf of directors of the Manager Phillip Capital Management (S) Ltd Jeffrey Lee Chay Khiong Director 20 September

15 KPMG LLP 16 Raffles Quay #22-00 Hong Leong Building Singapore Telephone Fax Internet Independent auditors report Unitholders Phillip Asia Pacific Growth Fund (Constituted under a Trust Deed in the Republic of Singapore) Report on the audit of the financial statements Opinion We have audited the financial statements of Phillip Asia Pacific Growth Fund ( the Fund ), which comprise the Statement of Financial Position and Statement of Portfolio 30 June 2018, the Statement of Total Return and Statement of Movement of Unitholders Funds for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 17 to 35. In our opinion, the accompanying financial statements are properly drawn up in accordance with the recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Singapore Chartered Accountants so as to present fairly, in all material respects, the financial position and portfolio holdings of the Fund 30 June 2018 and the financial performance and movements in unitholders funds for the year ended on that date. Basis for opinion We conducted our audit in accordance with Singapore Standards on Auditing ( SSAs ). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Fund in accordance with the Accounting and Corporate Regulatory Authority Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities ( ACRA Code ) together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 14

16 Independent auditors report Other information Phillip Capital Management (S) Ltd, the Manager of the Fund (the Manager ) is responsible for the other information contained in the annual report. Other information is defined as all information in the annual report other than the financial statements and our auditors report thereon. We have obtained all other information prior to the date of this auditors report. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Manager for the financial statements The Manager is responsible for the preparation and fair representation of these financial statements in accordance with the recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Singapore Chartered Accountants, and for such internal controls as the Manager determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to terminate the Fund or to cease the Fund s operations, or has no realistic alternative but to do so. The Manager s responsibilities include overseeing the Fund s financial reporting process. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 15

17 Independent auditors report As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal controls. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit. KPMG LLP Public Accountants and Chartered Accountants Singapore 20 September

18 Statement of Total Return Note S$ S$ Income Dividends 565, ,501 Interest , ,578 Less: Expenses Management fees (256,468) (268,909) Management fee rebates 3,617 - Registration fees (15,329) (15,192) Trustee s fees (41,035) (43,025) Custody fees (8,189) (9,236) Audit fees (17,220) (17,280) Transaction fees (131,272) (147,431) Other expenses (8,773) (46,905) (474,669) (547,978) Net income 90,967 50,600 Net gains or losses on value of investments and financial derivatives Net (losses)/gains on investments (797,017) 4,117,549 Net (losses) on financial derivatives (32,638) (56,749) Net (losses)/gains on foreign exchange (51,031) 58,625 (880,686) 4,119,425 Total return for the year before income tax (789,719) 4,170,025 Less: Tax 8 (54,988) (62,011) Total return for the year after income tax before distribution (844,707) 4,108,014 The accompanying notes form an integral part of these financial statements. 17

19 Statement of Financial Position As at 30 June 2018 Note S$ S$ Assets Portfolio of investments 18,006,487 19,730,406 Sales awaiting settlement 175, ,120 Receivables 3 98, ,609 Cash and cash equivalents 4 1,187,818 1,308,682 Financial derivatives at fair value 6 52 Total assets 19,468,169 21,396,869 Liabilities Payables 5 79, ,951 Purchase awaiting settlement 314,935 Financial derivatives at fair value ,731 Total liabilities 79, ,617 Equity Net assets attributable to unitholders 7 19,388,468 20,972,252 The accompanying notes form an integral part of these financial statements. 18

20 Statement of Movements of Unitholders Funds Note S$ S$ Net assets attributable to unitholders at the beginning of financial year 20,972,252 23,521,179 Operations Change in net assets attributable to unitholders resulting from operations (844,707) 4,108,014 Unitholders contributions/(withdrawals) Creation of units 71,024 27,188 Cancellation of units (810,101) (6,684,129) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (739,077) (6,656,941) Total decrease in net assets attributable to unitholders (1,583,784) (2,548,927) Net assets attributable to unitholders at the end of financial year 7 19,388,468 20,972,252 The accompanying notes form an integral part of these financial statements. 19

21 Statement of Portfolio As at 30 June 2018 By Geography (Primary) Holdings Fair value Percentage of total net assets attributable to unitholders 30/6/ /6/ /6/2018 S$ % Quoted Australia BHP Billiton Limited 7, , Insurance Australia Group Limited 35, , Sonic Healthcare Limited 8, , Wesfarmers Limited 8, , ,190, China Alibaba Group Holding Limited 2, , China Communications Construction Company Limited 277, , China Construction Bank Corporation H Shares 442, , China Life Insurance Company Limited 147, , China Overseas Land & Investment Limited 50, , China Petroleum & Chemical Corporation H Shares 146, , China Resources Gas Group Limited 32, , China Shenhua Energy Company Limited H Shares 60, , China Telecom Corporation Limited H Shares 332, , Citic Securities Company Limited 108, , Netease Inc , Petrochina Company Limited H Shares 300, , Tencent Holdings Limited 8, , ,328, Great Britain HSBC Holdings Plc 52, , Hong Kong AIA Group Limited 35, , Retech Technology Company Limited 284,331 85, , The accompanying notes form an integral part of these financial statements. 20

22 By Geography (Primary) Holdings Fair value Percentage of total net assets attributable to unitholders 30/6/ /6/ /6/2018 S$ % India Care Rating Limited 11, , HDFC Bank Limited 13, , , Indonesia PT Astra Otoparts Tbk 800, , PT Telekomunikasi Indonesia Tbk 600, , , Japan Alps Electric Company Limited 10, , Astellas Pharma Inc 10, , Bridgestone Corporation 7, , Fanuc Corp 1, , Fujitsu Limited 24, , JFE Holdings Inc 6, , Kao Corporation 4, , Komatsu Limited 6, , Mitsubishi Corporation 13, , Mitsubishi Electric Corporation 13, , Mitsui Fudosan Company Limited 9, , Murata Manufacturing Company Limited , Nippon Steel & Sumitomo Metal Corporation 13, , Nitto Denko Corporation 2, , Orix Corporation 9, , Panasonic Corporation 27, , SMC Corporation , Sony Corporation 10, , Sumitomo Mitsui Financial Group Inc 6, , Takeda Pharmaceutical Company Limited 5, , Toray Industries Inc 30, , ,953, The Philippines Philippine Stock Exchange Inc 2,240 10,

23 By Geography (Primary) Holdings Fair value Percentage of total net assets attributable to unitholders 30/6/ /6/ /6/2018 S$ % Singapore Hyphens Pharma International Limited 1,247, , Phillip SGX APAC Dividends Leaders REIT ETF 204, , Sembcorp Industries Limited 85, , Wing Tai Holdings Limited 177, , ,134, South Korea LG Chem Limited , Shinhan Financial Group Company Limited 7, , , Taiwan Cathay Financial Holding Company Limited 156, , Uni-President Enterprises Corporation 60, , , Thailand Land & Houses Public Company Limited NVDR Thai Beverage Public Company Limited 630, , , , , Vietnam Vietnam Dairy Products Joint Stock Company 26, , ,

24 Fair value Percentage of total net assets attributable to unitholders 30/6/ /6/2018 S$ % Portfolio of investments 18,006, Other net assets 1,381, Net assets attributable to unitholders 19,388,

25 By Geography (Summary) Percentage of total net assets attributable to unitholders Percentage of total net assets attributable to unitholders Fair value 30/6/ /6/ /6/2017 S$ % % Quoted Australia 1,190, China 4,328, Great Britain 674, Hong Kong 507, India 834, Indonesia 323, Japan 6,953, Philippines 10, Singapore 1,134, South Korea 665, Sri Lanka 0.99 Taiwan 582, Thailand 533, Vietnam 265, Portfolio of investments 18,006, Other net assets 1,381, Net assets attributable to unitholders 19,388,

26 By Industry (Secondary) Percentage of total net assets attributable to unitholders Percentage of total net assets attributable to unitholders Fair value 30/6/ /6/ /6/2017 S$ % % Automotive 483, Banks and Finance 3,321, Buildings/construction material 1.60 Chemical 505, Computer/Software 1,058, Diversified resource 419, E-Commerce 516, Electrical and Electronic 2,033, Engineering 598, Food and Beverage 716, Fund 272, Healthcare and Pharmaceutical 1,012, Insurance 1,613, Machine tools 518, Manufacturing 861, Media 3.70 Metals and Mining 977, Miscellaneous 3.18 Oil and Gas 677, Real estate 1,170, Semiconductor 4.53 Telecom service 425, Textiles 322, Transport Wholesale 503, Portfolio of investments 18,006, Other net assets 1,381, Net assets attributable to unitholders 19,388,

27 Independent auditors report Notes to the Financial Statements These notes form an integral part of the financial statements. 1 Domicile and activities Phillip Asia Pacific Growth Fund (the Fund ) is an open-ended Unit Trust constituted pursuant to the Trust Deed dated 24 July 1995 together with its Amending and Restating Deeds and its Supplemental Deeds thereon (collectively referred to as the Trust Deed ) between Phillip Capital Management (S) Ltd (the Manager ) and HSBC Institutional Trust Services (Singapore) Limited (the Trustee ). The Trust Deed is governed by and construed in accordance with the laws of the Republic of Singapore. The investment objective of the Fund is to achieve medium to long term capital appreciation through investing primarily in investments in or of companies with either assets wholly or partially in, or revenues wholly or partially derived from investment in countries and territories in the Asia Pacific region (including Japan, Australia and New Zealand) selected by the Manager for the purpose of investment. The Fund is benchmarked against the MSCI AC Asia Pacific Index. 2 Significant accounting policies 2.1 Basis of financial statements preparation The financial statements, expressed in Singapore dollars, have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts revised and issued by the Institute of Singapore Chartered Accountants. On 1 April 2017, the Fund has adopted the recommendations of revised RAP7 (revised March 2017) issued by the Institute of Singapore Chartered Accountants effective for the financial year beginning 1 July RAP 7 was revised in March 2017 to take into account, amongst others, the changes made to FRS 32 Financial Instruments: Presentation and FRS 107 Financial Instruments: Disclosures in relation to the offsetting of financial assets and liabilities; and new standards issued after 2012 including FRS 110 Consolidated Financial Statements, FRS 112 Disclosure of Interest in Other Entities and FRS 113 Fair Value Measurement. RAP 7 (Revised March 2017) ("Revised RAP 7") is applicable to unit trusts with annual periods beginning on or after 1 July The adoption of the Revised RAP 7 did not result in any significant changes to the accounting policies of the Trust and had no material effect on the amounts reported for current or prior financial years. For the purposes of preparation of these financial statements, the basis used for calculating the expense ratio and turnover ratio are in accordance with the guidelines issued by the Investment Management Association of Singapore (the IMAS ) and the Code on Collective Investment Schemes under the Securities and Futures Act (Cap 289) (the Code ) respectively. 26

28 2.2 Basis of valuation of investments Quoted investments are stated at fair value based on the bid prices at the reporting date. Unrealised gains/losses on investments are represented by the difference between the fair value and the carrying value of investments and are recognised in the Statement of Total Return. Realised gains and losses upon disposal of investments are computed on the basis of the difference between the carrying value and the selling price of investments on trade date and are taken to the Statement of Total Return. 2.3 Financial derivatives Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the Statement of Total Return when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes in fair value therein are recognised in the Statement of Total Return. 2.4 Recognition of income Dividend income is recognised when declared and is stated gross of tax credits. Interest income is recognised using the effective interest method. 2.5 Foreign currency translation Transactions in foreign currencies are translated at the exchange rate at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated at exchange rates at the reporting date. All exchange differences are recognised in the Statement of Total Return. 2.6 Tax expenses The Fund is a designated unit trust under the Singapore Income Tax Act (Chapter 134). As a result, the following sources of income are not subjected to Singapore tax at the Fund level: (i) gains or profits derived from Singapore or elsewhere from the disposal of securities; (ii) interest (other than interest for which Singapore tax has been withheld); and (iii) dividend derived from outside Singapore and received in Singapore. 2.7 Cash and cash equivalents Cash and cash equivalents comprise bank balances and amounts held with brokers. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. 2.8 Net assets attributable to unitholders Net assets attributable to unitholders are classified as equity. 27

29 3 Receivables S$ S$ Dividends receivable 91, ,348 Other receivable 6,591 5,261 98, ,609 4 Cash and cash equivalents S$ S$ Bank balances 998,696 1,017,086 Amounts held with brokers 189, ,596 1,187,818 1,308,682 The bank balances are placed with a financial institution related to the Trustee. 5 Payables S$ S$ Accrued expenses 79, ,951 6 Financial derivatives at fair value Financial derivative contracts comprise foreign exchange contracts due for settlement within 1 month (2017: futures contracts due within 1 month) from the reporting date. The contract or underlying principal amount of these financial derivatives and their corresponding gross fair value at the reporting date are analysed below. Notional amount Fair value assets Fair value liabilities S$ S$ S$ 2018 Foreign exchange contracts 20,052 (31) 2017 Futures contracts 325, (1,731) 28

30 7 Units in issue During the year, the number of units issued, redeemed and outstanding were as follows: Units at the beginning of the year 9,597,105 12,943,874 Units created 32,327 13,206 Units cancelled (374,525) (3,359,975) Units at the end of the year 9,254,907 9,597,105 Net assets attributable to unitholders S$ 19,388,468 20,972,252 Net asset value per unit S$ A reconciliation of the net assets attributable to unitholders per unit per the financial statements and the net assets attributable to unitholders per unit for issuing/redeeming units at the financial year end date is presented below: S$ S$ Net assets attributable to unitholders per unit per the financial statements Effect of adopting last traded price Net assets attributable to unitholders per unit for issuing/redeeming units Tax S$ S$ Overseas income tax 46,585 53,991 Capital gain tax 8,403 8,020 54,988 62,011 The overseas income tax charge relates to withholding tax suffered on receipt of distributions from overseas investments and the capital gain tax relates to disposal of the investments in overseas. 9 Financial risk management The Fund's activities expose it to a variety of market risks (including price risk, interest rate risk and currency risk), liquidity risk and credit risk. The Fund's overall risk management programme seeks 29

31 to minimise potential adverse effects on the Fund's financial performance. The Fund may use financial derivative instruments, subject to the terms of the Trust Deed to moderate certain risk exposures. Specific guidelines on exposures to individual securities and certain industries are in place for the Fund at any time as part of the overall financial risk management to reduce the Fund s risk exposures. a) Market risks Market risk is the risk of potential adverse change to the value of financial instruments because of changes in market conditions such as interest rate movements and volatility in securities prices. The Manager manages the Funds' exposure to market risk through the use of risk management strategies and various analytical monitoring techniques. i. Price risk Price risk is the risk that the fair values of equities or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). The investments of the Fund are subject to normal market fluctuations and the risks inherent in investing in securities markets and there can be no assurance that appreciation will occur. It is the policy of the Manager to maintain a diversified portfolio of investments so as to minimize the risk. The Manager s preferred strategy is to hold investments for the medium to long term. The Manager is therefore not concerned about the short-term price volatility with respect to its investments provided that the underlying business, economic and management characteristics of its investments remain favourable. Sensitivity analysis A 10% increase in the market prices of securities at the reporting date would increase the fair value of investments by the following amount: $ $ Portfolio of investments 1,800,649 1,973,041 A 10% decrease in the market prices of securities at the reporting date would have an equal but opposite effect on the fair value of investments, on the basis that all other variables remain constant. ii. Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Fund is not subject to significant risk of fluctuations in the market interest rates as the Fund s financial assets and liabilities are largely non-interest bearing other than the cash and cash equivalents. 30

32 iii. Currency risk The Fund is denominated in Singapore dollars. The Fund invests in underlying securities which are denominated in foreign currencies where fluctuations in the relevant exchange rates may have an impact on the income and value of the Fund. The Manager may seek to minimise exposure to foreign currency fluctuation to the extent practicable. As at 30 June 2018 and 2017, the concentration of the Fund s investments is set out in the Statement of Portfolio. Investments denominated in currencies other than the Fund s functional currency comprise the following: S$ S$ Australian Dollar 1,276,101 1,680,735 Hong Kong Dollar 4,736,450 4,426,364 Indian Rupee 834,934 1,749,856 Indonesian Rupiah 323, ,717 Japanese Yen 6,953,677 3,453,549 Korean Won 665,015 1,469,385 Philippine Peso 10, ,643 Sri Lankan Rupee 208,000 Taiwan Dollar 582, ,850 Thai Baht 290, ,600 United States Dollar 961,834 2,655,110 Vietnamese Dong 265,734 35,003 Cash and cash equivalents denominated in currencies other than the Fund s functional currency comprise the following: S$ S$ Hong Kong Dollar 189, ,928 Indian Rupee 367,036 Indonesian Rupiah 18, ,287 Japanese Yen 20,083 17,768 United States Dollar 29,743 1,328 Taiwan Dollar 218,960 Others 23 The Fund s monetary assets/liabilities are measured for their sensitivity to exchange rate movements based on the balance of the monetary assets/liabilities, forecasted exchange rate movements and the net asset value of the Fund. As at 30 June 2018 and 2017, with respect to the monetary assets and monetary liabilities of the Fund, had the Singapore Dollar appreciated/depreciated by 10% against foreign currencies, with all other variables remaining constant, the decrease/increase in net assets attributable to unitholders would be as follows: 31

33 Currency rise by 10% Decrease in net assets attributable to unitholders S$ S$ Australian Dollar 127, ,074 Hong Kong Dollar 492, ,829 Indian Rupee 83, ,689 Indonesian Rupiah 34, ,100 Japanese Yen 697, ,132 Korean Won 66, ,939 Philippine Peso 1,098 23,064 Sri Lankan Rupee 20,800 Taiwan Dollar 80,172 95,085 Thai Baht 29,040 33,560 United States Dollar 99, ,644 Vietnamese Dong 26,573 3,500 b) Liquidity risk The Fund is exposed to daily redemption of units in the Fund. Therefore the majority of its assets are invested in investments that are traded in an active market and can be readily disposed of. c) Credit risk Credit risk is the risk that a counterparty will fail to perform contractual obligations, either in whole or in part, under a contract. The Fund is exposed to counterparty credit risk on trading derivative products, cash and cash equivalents and other receivable balances. All transactions in listed securities are settled/paid upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities is only made once the Fund has received payment. Payment is made on a purchase once the securities have been received by the Fund. The trade will fail if either party fails to meet its obligation. The Fund may also enter into derivative contracts to manage exposures to currency risk and price risk. Hence, the Fund is also exposed to the risk that amounts held with counterparties for derivative contracts may not be recoverable in the event of any default by the parties concerned. Fair value estimation Except for investments which are measured at fair value, at 30 June 2017 and 2016, the fair values of assets and liabilities approximate their carrying values on the Statement of Financial Position due to their short period to maturity. 32

34 The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and securities) are based on quoted market prices at the close of trading on the reporting date. The quoted market price used for financial assets held by the Fund is the current bid price; the appropriate quoted market price for financial liabilities is the current asking price. When the Fund holds derivatives with offsetting market risks, it uses mid-market prices as a basis for establishing fair values for the offsetting risk positions and applies this bid or asking price to the net open position, as appropriate. The Fund classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). The following table analyses within the fair value hierarchy the Fund s financial assets and liabilities (by class) measured at fair value at 30 June 2018 and 2017: Level 1 Level 2 Level 3 Total S$ S$ S$ S$ 2018 Assets Portfolio of investments 18,006,487 18,006,487 Liabilities Financial derivatives, at fair value Level 1 Level 2 Level 3 Total S$ S$ S$ S$ 2017 Assets Portfolio of investments 19,730,406 19,730,406 Financial derivatives, at fair value ,730, ,730,458 Liabilities Financial derivatives, at fair value 1,731 1, Related parties In the normal course of business of the Fund, management fees and trustee fees have been paid or are payable to the Manager and the Trustee respectively as noted in the Statement of Total Return. 33

35 In addition, the bank holding company and related parties of the Trustee have also provided custodian, banking, foreign exchange, fund administration and brokerage services to the Fund in the normal course of business at terms agreed between the parties and within the provisions of the Trust Deed. The Manager may also use the services of related parties to carry out transactions involving the purchase and sale of securities. Other than as disclosed elsewhere in the financial statements, the following significant transactions took place between the Fund and its related parties during the year: S$ S$ Brokerage fees paid to: - a related party of the Manager 7,903 10,439 Interest income received from: - a related party of the Trustee Bank balances held with related parties of the Trustee 998,696 1,017,086 Amounts held with related parties of the Manager 189, , Financial ratios Expense ratio Total operating expenses S$ 343, ,076 Average daily net asset value S$ 20,520,415 21,503,502 Expense ratio (Note 1) % Turnover ratio Lower of total value of purchases or sales S$ 23,214,728 23,453,460 Average daily net asset value S$ 20,520,415 21,503,502 Turnover ratio (Note 2) % Note 1 The expense ratio has been computed based on the guidelines laid down by the IMAS. The calculation of the expense ratio is based on total operating expenses divided by the average net asset value for the year. The total operating expenses do not include (where applicable) brokerage and other transaction costs, performance fees, interest expenses, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source arising out of income received. The Fund does not pay any performance fees. The average net asset value is based on the daily balances. 34

36 Note 2 The portfolio turnover ratio is calculated in accordance with the formula stated in the Code. The calculation of the portfolio turnover ratio is based on the lower of the total value of purchases or sales of the underlying investments divided by the average daily net asset value. Total value of purchases (or sales) do not include brokerage and other transaction costs. 35

37 Important information Phillip Asia Pacific Growth Fund (the "Fund") is an open-ended umbrella unit trust authorised under the Securities and Futures Act, Chapter 289, by the Monetary Authority of Singapore. This document is published by Phillip Capital Management (S) Ltd, the manager of the Fund (the Manager ), for information only and it does not constitute a prospectus nor form part of any offer or invitation to subscribe for or to purchase, or solicitation of any offer to subscribe for or to purchase, any units in the Fund. All applications for units in the Fund must be made on the application forms accompanying the latest prospectus of the Fund (the Prospectus ). The information and opinions contained in this document have been obtained from public sources which the Manager believes to be reliable and accurate. However, no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and it should not be relied upon as such. Opinions included herein constitute the judgement of the Manager at the time specified and may be subject to change without notice, they are not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient and are not intended to provide the sole basis of evaluation of any investment. Neither the Manager nor the Fund, nor any of their respective associates, directors, officers or employees, accepts any liability whatsoever for any loss arising directly or indirectly from any use of this document or any information contained herein. Given the economic and market risks, there can be no assurance that the Fund will achieve their investment objectives. Investments in the Fund are not deposits or other obligations of, or guaranteed, or insured by the Manager or the distributors or their affiliates and are subject to investment risks, including the possible loss of the full principal amount invested. Returns may be affected by, among other things, the investment strategies or objectives of the Fund and material market and economic conditions. The value of the units and the income from them can fall as well as rise. Past performance is not necessarily indicative of the future performance of the Fund. This document should not be taken as a recommendation to buy or sell since it does not take into account the specific investment objectives, financial situation and the particular needs of any particular recipient of this document. Investors should seek advice from a financial advisor before purchasing units in the Fund. In any case, investors should read the Prospectus and consider the risks as well as suitability of the Fund before deciding whether to subscribe for units in the Fund. Copies of the Prospectus are available and may be obtained from the Manager. 36